How to compare mutual funds before investing?

In recent times, choosing a mutual fund has become quite a complex affair, albeit an equally important one. With a multitude of funds in the market to choose from, all vying for attention in their own ways, investors are often left puzzled to no end. Analyzing the returns is the most significant factor when it comes to mutual fund comparison. To understand in simple terms, a return that a fund gives over a given period is the percentage difference between the initial Net Asset Value and the ending Net Asset Value. It is crucial to calculate returns when it comes to making a comparison, so that one can avoid investing in the wrong funds.

If you wish to have an idea of the gains made by any fund over a particular time period, take absolute returns into account. However, to not end up comparing the wrong funds by using this parameter needs sufficient prudence. If you are looking at the returns of a diversified equity fund, it should be compared with other diversified equity funds only, and not with a sector fund or balanced fund. You should also know that the index is the benchmark for any fund and this is selected by the mutual fund firm as the basic standard for the returns that are to be garnered for investors. This is compulsory, i.e. declaration of an index as the benchmark for all mutual funds.

Whenever you think of making any comparisons or measurements with regard to returns, you should always select the right period of time. The entire duration for which you have to evaluate and compare returns is ideally the one where the type of fund should get investments. You should also undertake a thorough analysis of the return history that a particular fund has and whether it has been long enough with regard to witnessing diverse circumstances in the market. There are factors at play apart from returns which make a difference, but since it is the most integral one, it plays a major role before you choose to invest in a particular mutual fund.